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Financial Crises, Regulation and Growth

Published online by Cambridge University Press:  26 March 2020

Ray Barrell ,
Ian Hurst  and
Simon Kirby
Ray Barrell*
Affiliation:
National Institute of Economic and Social Research
Ian Hurst
Affiliation:
National Institute of Economic and Social Research
Simon Kirby
Affiliation:
National Institute of Economic and Social Research
*
e-mail r.barrell@niesr.ac.uk
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Abstract

The paper discusses the effects on growth of a systemic banking crisis as a result of debt defaults. These effects will come from the impact of credit rationing on consumption and credit and from the impacts of a significant rise in the spread between lending and borrowing rates for both producers and consumers. The analysis uses the dynamic stochastic general equilibrium version of the National Institute global model. The paper also investigates the impact on output of a permanent, regulation induced, rise in margins in the financial sector, taking into account the impacts of regulation on equity market valuations.

Keywords

Financial crises: financial market spreadsforward looking consumersdynamic stochastic general equilibrium modelsE17E44
Type
Articles
Information
National Institute Economic Review , Volume 206 , October 2008 , pp. 56 - 65
Copyright
Copyright © 2008 National Institute of Economic and Social Research

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Footnotes

∗

This paper builds on Barrell, Hurst and Kirby (2008) which was given at the AIECE conference in Budapest and at the MMF conference at Brunel University on the 9th and 20th of May. We would like to thank conference participants, and especially Wim Suyker, John FitzGerald, Chris Martin and Charles Goodhart for their comments as well as our colleagues Dawn Holland and Martin Weale and Phil Davis for their contributions to our understanding of this topic and to this paper in particular. Previous versions have been given at seminars at the European Commission in Brussels, the Bundesbank in Frankfurt, the IMF in Washington, at the DZ Central Bankers conference in Vienna and at IfW in Kiel. Some of the work in this paper was initially funded by the European Commission in a project on the macroeconomic implications of Basel II, and the model development has been funded by the NiGEM user group, which includes the Bank of England, the ECB, the Bundesbank, the Swedish Riksbank, the IMF, the Bank of France, the Bank of Spain, the Bank of Italy and other members of the ESCB. The responsibility for the views expressed here remains ours.

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